Fundamental indicators of the securities industry, such as trading volume, IPOs, partial fund size, and rates, are still under pressure from month to month. Sector ranking insurance is currently still superior to brokerage firms, and mergers and acquisitions are still the main investment line for brokerage firms.
The Zhitong Finance App learned that Open Source Securities released a research report saying that according to the interim report outlook, insurance is superior to brokerage firms. The performance of the Hong Kong stock and A-share markets in the 2nd quarter was superior to the same period in 2023, which is expected to bring positive contributions to insurance investment income, and the increase in value ratio supports NBV's good growth. Fundamental indicators of the securities industry, such as trading volume, IPOs, partial fund size, and rates, are still under pressure from month to month. Sector ranking insurance is currently still superior to brokerage firms, and mergers and acquisitions are still the main investment line for brokerage firms. Diversified Finance focuses on improving interest spreads and high dividend rates. The logic of stabilizing the volume and price increase in the payment industry is expected to support the mid-term boom. It recommends Lacala (300773.SZ), a leading third-party billing leader, to benefit from the target new continent (000997.SZ). 600901.SH
The main views of Open Source Securities are as follows:
Insurance reporting is booming, and mergers and acquisitions are still the main investment line in the brokerage sector
According to the interim report, insurance is superior to brokerage firms. The performance of the Hong Kong stock and A-share markets in the second quarter was superior to the same period in 2023. It is expected to make a positive contribution to insurance investment income, and the increase in value ratio will support the good growth of NBV. Fundamental indicators of the securities industry, such as trading volume, IPOs, partial fund size, and rates, are still under pressure from month to month. Sector ranking insurance is currently still superior to brokerage firms, and mergers and acquisitions are still the main investment line for brokerage firms. Diversified finance focuses on improving interest spreads and high dividend rates. The logic of stabilizing volume and price increases in the payment industry is expected to support the mid-reporting boom. It recommends Lacara, a leading third-party billing leader, to benefit from the new continent.
Insurance: The year-on-year growth in 2024H1 performance is expected to be better than in the first quarter, and NBV is expected to maintain a good growth rate
The debt side continues to be strong. The central bank stated that stabilizing long-term interest rates is beneficial to the asset side, and the year-on-year growth rate of interim results is expected to be better than in the first quarter. (1) New orders in the 2nd quarter were affected by a high base or slightly pressured, but the individual insurance production capacity of listed insurers continued to increase, and the value ratio is expected to continue the upward trend. The NBV growth rate is expected to be good in the 2nd quarter, and NBV is expected to achieve small double-digit high-quality growth throughout the year. (2) Judging from the equity market performance, the Shanghai and Shenzhen 300 and Hang Seng Index yielded -2.14%/+7.12% for the second quarter (-5.15%/-7.27% for the same period in 2023, respectively). The year-on-year improvement in the equity market is expected to benefit the year-on-year increase in life insurance investment income. The overall performance growth rate of the interim report is expected to be better than the first quarter report. (3) Reduction in settlement and scheduled interest rates, integration of reporting and product structure optimization are expected to reduce the industry's stock and incremental product debt costs, and concerns about interest spread loss risks have been mitigated. Recently, 10-year treasury bond yields have declined somewhat. The central bank has stated that it will stabilize long-term interest rates, which is beneficial to the stability of life insurance assets, and is concerned about the impact of macroeconomic and real estate policies in July. Sector valuations and institutional holdings are still low, with business sentiment and policy support from excess earnings. Asset-side catalysis is expected to drive sector valuations to continue to rise, and continued optimism about life insurance sector opportunities.
Brokerage firms: Fee revenue is still under month-on-month pressure, and mergers and acquisitions are still the main line of the industry
In the second quarter, brokers' fee revenue was still under pressure. The stock market declined and equity self-operation was under pressure, while maintaining a strong bond market was the main influencing factor supporting brokers' performance. Furthermore, the year-on-year decline in management expenses driven by cost reduction and efficiency also had a positive effect on net profit. We expect the 2024H1 net profit of the listed brokerage firm to be 58.8 billion yuan, -27% YoY, and the 2024 Q2 net profit of 30 billion yuan, -21% YoY and +4% month-on-month. (1) The 2024H1 net profit year-on-year forecast for key targets: Dongfang Wealth is expected to be -7% YoY, Orient Securities -25% YoY, Caitong Securities -7% YoY, and Societe Generale Securities -56% YoY. (2) Affected by the sluggish market and stricter regulations, the fundamentals of the brokerage industry were under pressure in the first half of 2024. The year-on-year decline in the base figure for the second half of the year is expected to narrow, and FICC and cost reduction and efficiency are expected to support full-year results. The valuation and institutional allocation of the brokerage sector are still at the bottom of history, and undervalued leading brokerage firms and targets with mergers and acquisitions themes are still the main line of the industry. Recommended target combinations: Guolian Securities, Oriental Wealth, Caitong Securities. Beneficiary portfolio: Zheshang Securities, Cathay Pacific Junan, China Galaxy, Fangzheng Securities.
Diversified finance: recommend Jiangsu Golden Rental, Hong Kong Stock Exchange, La Cala
(1) Jiangsu Golden Rental: The month-on-month decline in interbank lending rates drove the company's debt costs down, and net interest spreads are expected to expand month-on-month in the second quarter. The mid-report performance is positive, with 2024H1 operating revenue/net profit of 2.62/1.44 billion, +9% YoY; 2024Q2 operating revenue/net profit of 1.34/0.73 billion, +12%/+14% YoY, +5%/+2% month-on-month. (2) Hong Kong Stock Exchange: Focus on policy expectations for α catalysis, and look forward to beta opportunities under fundamental restoration. 2024Q2 spot ADT was HK$121.6 billion, +22% year over year. The diversification strategy of derivatives and commodities achieved remarkable results. We forecast that in 2024Q2 the company would achieve net profit of HK$3.22 billion, +10.8% year over year and +8.3% month over month. (3) Payment industry: Focus on short-term profit improvements brought about by price increases, and optimistic about the long-term growth of “Payment+Technology”. We expect the Q2 price increase effect to be prominent and the technology sector's gross profit to improve. We expect La Cala to deduct 0.22 billion in non-net profit in 2024Q2, +129% YoY on a low base, and +59% YoY on non-net profit in 2024H1.
Risk warning: Stock market fluctuations have had an uncertain impact on brokers' and insurance profits; recovery in insurance demand falls short of expectations; brokers' wealth management and asset management profits fall short of expectations.